Edge Decay Monitor

Overview

This pillar tracks the performance of your trading strategies over time to detect when they are losing their predictive power. It acts as an early warning system, helping you adapt before a winning strategy starts losing money.

What It Does

The Edge Decay Monitor calculates a rolling average of a strategy's return on investment (ROI) from your trading history. It then analyzes the trend of this performance metric to identify persistent downturns. This provides an objective, data-driven signal that a strategy's effectiveness is diminishing as the market adapts.

Why It Matters

Prediction markets are dynamic and what works today may not work tomorrow. This pillar provides a crucial risk management layer, offering a clear signal to re-evaluate or retire a strategy, thereby protecting your capital from the slow bleed of a decaying edge.

How It Works

First, the pillar ingests your trading history for a specific strategy. It then calculates the daily or weekly ROI for each period. Using this data, it computes a 30-day moving average of the ROI and fits a regression line to recent performance to measure its directional slope.

Methodology

The core calculation is a 30-period Simple Moving Average (SMA) of a strategy's daily ROI. Edge decay is quantified by the slope of a linear regression line fitted to the last 15 periods of the SMA. A 'Regime Change Flag' is triggered if the slope is negative and statistically significant (p-value < 0.05) for three consecutive periods.

Edge & Advantage

It replaces gut feelings about performance with a quantitative metric, providing a disciplined signal to act before significant capital is lost.

Key Indicators

• Rolling ROI (30-day)

  high

  The smoothed, time-averaged return on investment of the strategy, filtering out daily noise.

• Edge Degradation Slope

  high

  Measures the rate and direction of change in the Rolling ROI, indicating if performance is improving or declining.

• Regime Change Flag

  medium

  A binary signal that activates when a statistically significant and persistent performance decline is detected.

Data Sources

• User Prediction History API

  Provides the raw data of a user's trades, outcomes, and profit/loss records needed for the calculation.

• Strategy Backtest Results

  Historical performance data from a strategy backtest, used to evaluate potential edge decay before live deployment.

Example Questions This Pillar Answers

• → Is my crypto momentum trading strategy still profitable?
• → Should I reduce my allocation to my polling-based election model?
• → Has the market adapted to my sports betting arbitrage bot, reducing its effectiveness?

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